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Retail sector is red hot from strong earnings updates
Shares in numerous retailers are flying high after upgrading earnings guidance or on relief they have come through the other side of the Covid crisis.
Sector optimism centres on the successful vaccine rollout, easing unemployment concerns, and a strong housing market, but has the market now priced in too much good news?
Yes, many people have built up cash savings during lockdowns, so there is capacity to spend in shops, yet others face post-pandemic employment uncertainty, particularly within the younger cohort, which could rein in spending.
Retailer Next (NXT) is at an all-time high of £83.20 after upgrading annual profit guidance following a post-lockdown sales surge, while Greggs (GRG) hit a record £25.91 after it reported a strong recovery in sales since the easing of restrictions.
Greggs believes 2021 profits are likely to be materially higher than its previous expectation and could be around 2019 levels of £114.2 million in the absence of further restrictions.
Other rallying retailers include reopening beneficiaries such as arts, crafts and book seller The Works (WRKS) and greetings cards retailer Card Factory (CARD), whose post-reopening performance exceeded expectations.
One of the most eye-catching movers is Superdry (SDRY), up 76% year-to-date. Its shares surged on news of a very strong end to its financial year and an upbeat outlook.
While the flurry of upgrades is welcome, investors shouldn’t ignore the caution expressed by some of the sector’s savviest management teams.
Greggs warned that ‘considerable uncertainty remains’, while Next cautioned that recent strong sales growth was due to pent-up demand built up over the last three months and is unlikely to be indicative of demand for the rest of 2021, adding that ‘evidence from last year suggests that this post lockdown surge will be short lived’.
All eyes now turn to results from high street stalwart Marks & Spencer (MKS) on 26 May to see how its clothing sales have fared in recent weeks.
An update from Kingfisher (KGF) will be keenly watched on 20 May given how DIY demand appears to be holding up very well, albeit product shortages could be an issue. On the same day will be an update from Watches of Switzerland (WOSG) where investors will be hoping it follows other luxury goods sellers in reporting strong sales.